Monday, 21 October 2013

Analysis of Merck

A German pharmaceutical and chemical company

Company: Merck

Business: A German pharmaceutical and chemical company that are divided into four business units: Merck Serono (biopharmaceuticals the largest division working with highly innovative biopharmaceuticals), Consumer Health (which is over the counter pharmaceuticals to improve customers health), Performance Materials (offer high tech chemical materials to clients working with electronics, plastics etc.) and finally Merck Millipore (supply tools within the life science field).

Active: They are present world wide. Currently they are selling their products and brands in more than 150 countries

P/E: 13.6

Comment: Only 30% of the shares are publicly traded of Merck, the rest is owned by the Merck family.

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of Merck is a tiny bit too high with 13.6 but the P/B is great with 0.7 which means according to Graham that it is a very clear buy! The earnings to sales are so, so with 5% but they ROE is really bad with 5.5%. The book to debt is acceptable with a ratio of 0.9. They have in the last five years had an excellent growth of yearly 8.3% which leads to a motivated P/E of 22 to 25 which means that today Merck is highly undervalued on the market. They spend, and please do not forget that I am a researcher myself, far, far too much money on research! 267% of the earnings is really in a different dimension compared to what I have previously seen companies do. Sure some have been slightly above 100% but that was it. Over 200% woow... and it makes me concerned. They pay a very tiny dividend of only 1.4% which on the other hand only represents less than 20% of the earnings so they have plenty of room to keep it and increase it.

Conclusion: Once again very mixed feelings. I don´t like P/E but P/B and combined it is great, the ROE is seriously bad, the growth is excellent and the dividend is bad also besides from them spending crazy amounts on research. I will not buy this stock today but I have decided that I will add it to the Stocks of Interest page for the next time it will be updated.

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Anonymous said...


How do you figure out that kind of yield ? I find that 1.72/year out of the current stock price represents 3.7 %.

Fredrik von Oberhausen said...

Hi there,

it took me some time to realise the difference between our calculations and now I think I know it. It is one of those freak things where the German Merck mother company completely sold off the US part that is now being traded and run on its own under Merck Co. if I understood it correctly.

My stock yield is correct based on what I have looked upon which is Merck registered in Germany on DAX and being traded in Euros.

What you compared it with is Merck Co. which is being traded at 46.51 USD in the US and they paid last year also a dividend of 1.7 but in USD which gives just like you say a stock yield of 3.7%.

Crazy! Hmmm... it definitely looks as if the American Merck Co. is more interesting to invest in than the German one.

Thanks for bringing up this issue so that it could be clarified!